Oil Prices Rally Amid Middle East Tensions, Yet Weekly Losses Loom

Economic

Commodity

Summary:

Oil prices climbed on Friday due to increased tensions in the Middle East, which raised concerns about potential supply disruptions. However, the market is poised for a weekly decline amid expectations of reduced U.S. interest rate cuts.

Heightened tensions in the Middle East have once again become a pivotal driver of oil prices, as concerns over potential supply disruptions from the oil-producing region have surged. This uptick in geopolitical risk comes amidst lingering uncertainties surrounding global oil demand and supply dynamics.

The recent attack on Iran's embassy in Damascus, reportedly carried out by suspected Israeli warplanes, has escalated tensions in the region. This event has heightened fears of retaliation from Iran, raising the specter of a broader conflict that could disrupt oil supplies. Such geopolitical uncertainties often inject volatility into oil markets, as investors weigh the potential impact on global oil production and distribution channels.

Adding to the market's unease are the persistent concerns about rising U.S. inventories, which have kept oil prices near a six-month high. Despite efforts by major oil-producing nations to manage output levels, ongoing supply glut fears continue to weigh on market sentiment. The delicate balance between supply and demand remains a key determinant of oil price movements, with any significant disruptions in the Middle East likely to exacerbate existing supply concerns.

In response to the heightened geopolitical tensions, oil prices experienced a notable uptick on Friday, with Brent crude futures rising by 0.9% to $90.53 a barrel and U.S. West Texas Intermediate crude futures climbing 1.1% to $85.94. However, the market's gains were tempered by the International Energy Agency's downward revision of its forecast for 2024 world oil demand growth, coupled with a prediction of a further slowdown in 2025. This sobering outlook underscored the lingering uncertainties surrounding the trajectory of global oil demand, particularly amidst ongoing geopolitical tensions and economic headwinds.

While tensions between Iran and Israel persist, there is cautious optimism that any potential Iranian retaliation would be limited in scope, avoiding a full-scale escalation into war. However, Tehran's signaling of a response aimed at averting major escalation underscores the delicate balance of power in the region and the potential for unexpected developments to roil oil markets.

Looking ahead, analysts from ING suggest that oil's recent rally may struggle to sustain momentum unless there is a significant escalation in the Middle East or notable supply disruptions. The evolving geopolitical landscape, coupled with shifting demand dynamics and macroeconomic trends, will continue to shape oil market sentiment in the coming weeks and months.

While geopolitical tensions in the Middle East have provided temporary support to oil prices, underlying concerns about supply glut and demand uncertainties persist. The delicate balance between geopolitical risks and fundamental market factors underscores the need for vigilance among market participants, as they navigate the complex landscape of global oil markets.

Source: Reuters

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Owen Li

Economic

Including by 7.9% annualized for the not-seasonally adjusted PPI, worst since June 2022. So we'll take a look.

The Producer Price Index data got a lot of attention today because it didn't increase as sharply as a month ago, and so that was seen as a relief on the inflation front.

The thing is these figures are very volatile from month to month, as the blue lines in the charts below show, and the smaller increases in March on top of the spikes in February weren't nearly small enough, and all the three-month rates - the month-to-month increases in January, February, and March combined - that iron out some of the month-to-month volatility, jumped.

The other thing is these figures are seasonally adjusted - and that makes sense, a lot of this stuff is very seasonal, such as gasoline prices, which drop to their seasonal lows in the winter and rise to seasonal highs during driving season in the summer. And seasonality is not inflation.

But the seasonal adjustments in March were huge

Those seasonal adjustments in March were far larger than in the Marches during the years before the pandemic. So we will look at the seasonally adjusted PPI and at the not-seasonally adjusted PPI. And we will see that the seasonal adjustments this March were much bigger than in the five years before the pandemic, likely skewed by the distortions during the pandemic that then became part of the base for current seasonal adjustments.

The PPI, not seasonally adjusted, jumped by 6.2% annualized in March from February, which was a smaller spike than the 9.2% in February.

The three-month rate, which irons out the month-to-month squiggles, jumped 7.8% annualized, the highest since June 2022. You can see from the blue line how crazy volatile the non-seasonally adjusted data is. The three-month rate irons out only some of that volatility (red):

2 Things About The PPI: March Seasonal Adjustments Were Huge, And 3-Month Rates All Jumped_1

The PPI, seasonally adjusted,rose by 1.9% annualized in March from February, a sharp deceleration from February's 6.9%. The three-month rate jumped by 4.4%.

2 Things About The PPI: March Seasonal Adjustments Were Huge, And 3-Month Rates All Jumped_2

A much bigger difference than before the pandemic. After seasonal adjustments, the three-month rate in March (4.4%) came in a lot tamer than not seasonally adjusted (7.8%). A difference of 3.4 percentage points! That's a big difference.

In the five years before the pandemic, the difference in March was between 1.5 percentage points and 2.5 percentage points. This March, the difference was 3.4 percentage points, meaning that the seasonal adjustments were much larger than before the pandemic, likely skewed by the distortions during the pandemic as the past years.

When seasonal adjustments go awry, they self-correct later in the opposite direction, like a pendulum. So we will likely see some surprises in the next few months in the other direction, and then we won't be surprised by the surprises.

On a three-month basis, the PPI rates jumped

As we can see in the charts above, the three-month rates jumped both seasonally adjusted and not seasonally adjusted. This is based on the big increases over the last three months.

Below we look into the seasonally adjusted major categories - core PPI, services PPI, and core goods PPI - and all of them jumped on a three-month basis in a disconcerting manner.

Core PPI, which excludes energy costs, rose 2.8% annualized in March from February, and that was less hot than the 3.5% and 6.2% readings in the prior two months (seasonally adjusted).

But the 3-month rate jumped 4.2% annualized, the worst since August 2022 (seasonally adjusted).

2 Things About The PPI: March Seasonal Adjustments Were Huge, And 3-Month Rates All Jumped_3

Services PPI rose 3.4% annualized in March from February, not much slower than in February (3.4%). But the 3-month rate jumped by 4.8%, the highest since May 2022 (all seasonally adjusted).

These are services that producers use. They weigh 62% in the overall PPI. And producers will try to pass those price increases on to their customers.

2 Things About The PPI: March Seasonal Adjustments Were Huge, And 3-Month Rates All Jumped_4

The finished core goods PPI, which excludes energy costs, rose by 2.8% annualized in March from February, a smaller increase than the 4.1% jump in February. These are core goods that producers buy, and whose costs become part of their input costs.

But the three-month rate jumped 3.6%, the biggest increase since March 2023. After the plunge of the 3-month rate from mid-2022 through late 2023, the rate has turned around.

So if we get three months of low PPI readings going forward, the three-month rates will back off their jump. But if we continue along this path of higher lows, and higher highs, the trend goes in the other direction, which will eventually feed into other inflation data. And aside from that, we may be dished up a surprise in future months when the too-big seasonal adjustments self-correct.

Source: wolfstreet.com

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Ukadike Micheal

Economic

Stocks

The dominance of the tech sector within the S&P 500 has reached unprecedented levels, with seven prominent stocks now accounting for nearly 30% of the index's total weight. Despite varying performances among these stocks, the remarkable surges of Nvidia, Meta, and Amazon have propelled the group to new heights.

Nvidia, in particular, has experienced an exceptional 80% surge, driven by the soaring demand for its AI computing chips. This surge reflects not only the increasing adoption of artificial intelligence but also the crucial role that Nvidia plays in powering this technological revolution. Meta, formerly Facebook, and Amazon have also seen significant gains of 48% and 24% respectively, further solidifying the tech sector's dominance within the market.

However, amidst this surge, Tesla has faced significant challenges, with its shares plummeting approximately 30%. The decline in Tesla's performance is largely attributed to the slowdown in demand for electric vehicles and concerns about the company's ability to maintain its competitive edge in the rapidly evolving automotive industry.

From a technical standpoint, the concentration of market influence within a few select stocks presents both opportunities and risks for investors. On one hand, the impressive gains of key tech stocks signal strength and innovation within the sector, attracting investors seeking growth opportunities. On the other hand, such heavy weighting in the index by a few select stocks amplifies market volatility and systemic risk, as any adverse developments within these companies could significantly impact the broader market.

Moreover, the increasing dominance of tech giants raises concerns about market diversification and the potential for a tech-driven bubble. As these companies continue to expand their influence, their performance becomes increasingly correlated, potentially exacerbating market downturns.

Nevertheless, the tech sector's resilience amidst economic uncertainties and evolving consumer behavior underscores its importance as a driver of market performance. Investors must carefully assess the risks and rewards associated with this concentration of market influence, diversifying their portfolios to mitigate potential downside risks while capitalizing on growth opportunities within the tech sector.

While the Magnificent Seven's ascent in the S&P 500 reflects the dynamism and innovation of the tech sector, it also underscores the need for vigilance and prudent risk management. As these influential stocks continue to reshape the market landscape, investors must navigate carefully to capitalize on opportunities while safeguarding against potential pitfalls.

Source: Bloomberg

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Kevin Du

Economic

Britain’s economy has taken a step closer to exiting recession after official figures showed growth continued in February despite a washout month for construction and retail after one of the wettest starts to a year on record.

The Office for National Statistics (ONS) said gross domestic product (GDP) rose by 0.1% in February, matching City economists’ forecasts and extending a recovery after growth in January was revised up from 0.2% to 0.3%.

Liz McKeown, an ONS director of economics statistics, said: “The economy grew slightly in February with widespread growth across manufacturing, particularly in the car sector. Services also grew a little with public transport and haulage, and telecommunications having strong months.“Partially offsetting this there were notable falls across construction as the wet weather hampered many building projects.”

The UK met the technical definition of recession after contracting in the third and fourth quarters of last year. An end to the slump will require a continued expansion in March to meet a quarterly return to growth.

The data comes with Rishi Sunak under pressure to show progress on the economy before sending voters to the polls in a general election later this year, with the Conservatives trailing Labour in opinion polls.

The latest figures also show growth of 0.1% over the three months to the end of February, the first expansion over a three-month period since last summer, with activity recovering from a slump last year as households cut back on spending amid the cost of living crisis.

The chancellor, Jeremy Hunt, said the figures were a “welcome sign that the economy is turning a corner, and we can build on this progress if we stick to our plan”.

Growth in February was driven by manufacturing in particular, with a sharp recovery in car production, where output was up by 17.8% compared with the same month a year earlier.

However, construction output collapsed by 1.9% on the month as heavy rainfall forced cranes to fall idle on building sites across the country. The UK’s dominant services sector, which makes up about four-fifths of the economy, also struggled for growth momentum, with an expansion of only 0.1% on the month amid weaker activity in retail and wholesale distribution.

The ONS highlighted figures showing the fourth wettest February on record in England, contributing to fewer sales by household goods and food stores but increased online sales.

It also said conflict in the Middle East had disrupted global supply chains, hitting retailers, vehicle mechanics and health and social work, where approximately one in 10 businesses were affected.

Economists said that GDP would need to fall by an unlikely 1% or more in March for the economy to contract over the first quarter of 2024 as a whole, meaning an escape from a short and shallow recession is widely anticipated. Business surveys have also pointed to continued strength in private sector activity in March.

Paul Dales, the chief UK economist at the consultancy Capital Economics, said: “As a result, we can safely say, after lasting just two quarters and involving a total fall in GDP of just 0.4% or so, [that] the recession ended in the fourth quarter.”

However, growth is expected to remain weak while households and businesses remain under pressure from elevated Bank of England interest rates and significantly higher prices for goods and services than three years ago.

Despite the monthly recovery in output at the start of 2024, GDP remains below its level of June 2023, and has stayed broadly flat since early 2022.

Paul Nowak, the general secretary of the TUC, said: “Our economy is still smaller than this time last year with growth stuck in the slow lane. Real wages are still worth less than in 2008. And millions are struggling to cover their bills.

“After 14 years of stagnation you’ll be hard-pressed to find many people who feel better off.”

Source: The Guardian

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Thomas

Commodity

Market Overview

Oil prices increased on Friday due to rising tensions in the Middle East, potentially disrupting supply from the oil-rich region. Despite this uptick, oil is poised for a weekly decline influenced by the reduced likelihood of U.S. interest rate cuts this year.

The situation escalated following a suspected Israeli airstrike on Iran’s embassy in Damascus, with Iran vowing retaliation. Such geopolitical risks, alongside OPEC+’s supply cuts and improving global economic conditions, have significantly impacted oil price forecasts.

However, ongoing U.S. inflation concerns temper these gains, suggesting a cautious outlook for the oil market.

Natural Gas Price Forecast

Natural Gas and Oil Forecast: Middle East Tensions Underpin Energy Sector_1

Today’s analysis of Natural Gas (NG) reflects a decrease, with the price falling to $1.90, down by 0.52%. The pivot point stands at $1.89, critical for maintaining a bullish stance. Resistance levels are set at $1.95, $2.00, and $2.04, suggesting possible ceilings for upward movement.

On the downside, support is identified at $1.84, with additional layers at $1.78 and $1.72 that could arrest further declines. Both the 50-Day Exponential Moving Average at $1.94 and the 200-Day EMA at $1.89 underline this pivot, indicating potential price stability.

However, a break below $1.89 could lead to a sharp selling trend, warranting vigilant market monitoring.

WTI Oil Price Forecast

Natural Gas and Oil Forecast: Middle East Tensions Underpin Energy Sector_2

Today’s technical outlook for USOIL indicates a slight increase, with the current price marked at $85.60, up by 0.13%. The critical pivot point stands at $85.44, setting a baseline for bullish sentiment above this threshold.

Resistance levels are identified at $86.63, $87.63, and $88.53, respectively, offering potential hurdles in upward movement. Support levels to watch are $84.58, $83.57, and $82.54, providing cushions against downward trends.

The 50-Day Exponential Moving Average at $85.74 slightly surpasses the pivot, suggesting underlying strength, while the 200-Day EMA at $84.00 further bolsters support.

A break below the pivot point could trigger a notable selling trend, highlighting the need for vigilance around this key level.

Brent Oil Price Forecast

Natural Gas and Oil Forecast: Middle East Tensions Underpin Energy Sector_3

Today’s assessment of UKOIL reveals a modest uptick to $90.20, a gain of 0.06%. The established pivot point at $89.99 marks a crucial juncture; trading above this level suggests a bullish outlook. The chart shows resistance levels at $90.92, $91.90, and $92.89 that may challenge further advances.

Conversely, support is positioned at $89.15, with further buffers at $87.89 and $86.37 potentially stabilizing any declines. The 50-Day Exponential Moving Average closely aligns with the pivot at $90.01, reinforcing current levels, while the 200-Day EMA at $88.02 supports a longer-term bullish trend.

Should prices fall below $89.99, a sharp selling trend could be triggered, necessitating cautious monitoring.

Source: FX Empire

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Cohen

Economic

Commodity

Oil prices rose on Friday as heightened tension in the Middle East raised the risk of supply disruptions from the oil-producing region, though prices are set for weekly losses amid expectations of fewer US interest rate cuts in 2024.

Brent crude futures climbed 51c, or 0.57%, to $90.25 a barrel by 4.20am GMT, while US West Texas Intermediate crude futures rose 61c, or 0.72%, to $85.63.

The gains erased some losses from the previous session, which was dominated by worries about stubborn US inflation that dampened hopes for an interest rate cut as early as June.

Suspected Israeli warplanes bombed Iran’s embassy in Damascus in a strike for which Iran has vowed revenge, ratcheting up tensions in a region already strained by the Gaza war.

Israel has not said it was responsible but Iran’s supreme leader, Ayatollah Ali Khamenei, said on Wednesday Israel “must be punished and it shall be” for the attack.

The US expects an attack by Iran against Israel but one that would not be big enough to draw Washington into war, according to a US official. Iranian sources said that Tehran has signalled a response aimed at avoiding major escalation.

Israel is keeping up its war in Gaza but is also preparing for scenarios in other areas, Prime Minister Benjamin Netanyahu said on Thursday.

“The geopolitical risks remain elevated,” ANZ Research said in a note, adding that oil prices have jumped almost 19%, also supported by improving economic conditions and supply cuts by oil cartel Opec and allies, together called Opec+.

In Europe, where the labour market has begun to soften and growth is stagnating, central bankers left the policy rate unchanged on Thursday but signalled they remain on track to cut rates as soon as June.

“The European Central Bank’s decision to leave policy rates unchanged ... was expected, but accompanying statements open the door for near-term monetary easing,” S&P Global Market Intelligence said in a note.

However, in the US Federal Reserve officials signalled on Thursday that there was no rush to cut interest rates as sticky US inflation remains a concern.

Oil prices were still set for weekly declines as Brent and WTI were heading for more than a 1% drop by 4.20am GMT on Friday.

ING analysts said they expect a pullback in oil’s rally if there is no further escalation in the Middle East or supply disruptions, adding that Opec’s latest monthly market report was also in line with expectations.

“We maintain our forecast for Brent to average $87 a barrel over the second quarter of this year,” the ING analysts said.

Source：Reuters

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FXOpen

Economic

Commodity

Important Takeaways for Gold and Oil Prices Analysis Today

Gold price started a strong increase above the $2,350 zone against the US Dollar.

It broke a key bearish trend line with resistance at $2,345 on the hourly chart of gold at FXOpen.

Crude oil is consolidating above the $84.00 support.

There is a connecting bearish trend line forming with resistance near $85.60 on the hourly chart of XTI/USD at FXOpen.

Gold Price Technical Analysis

On the hourly chart of Gold at FXOpen, the price formed support near the $2,300 zone. The price remained in a bullish zone and started a strong increase above $2,320.

It broke a key bearish trend line with resistance at $2,345. The bulls even pushed the price above the $2,350 level and the 50-hour simple moving average. Finally, it traded to a new all-time high at $2,395.

Gold Price Hits New High While Crude Oil Price Consolidates_1

The price is now consolidating gains near the $2,385 zone and the RSI corrected from 80. Initial support on the downside is near the 23.6% Fib retracement level of the upward move from the $2,319 swing low to the $2,395 high at $2,378.

The first major support is near the $2,350 zone and the 50-hour simple moving average. It is close to the 61.8% Fib retracement level of the upward move from the $2,319 swing low to the $2,395 high.

If there is a downside break below the $2,350 support, the price might decline further. In the stated case, the price might drop toward the $2,325 support.

Immediate resistance is near the $2,395 level. The next major resistance is near the $2,400 level. An upside break above the $2,400 resistance could send Gold price toward $2,420. Any more gains may perhaps set the pace for an increase toward the $2,440 level.

Oil Price Technical Analysis

On the hourly chart of WTI Crude Oil at FXOpen, the price found support near the $84.00 zone against the US Dollar. The price formed a base and started a recovery wave above $84.50.

The bulls were able to push the price above the 50% Fib retracement level of the downward move from the $85.99 swing high to the $84.33 swing low. The hourly RSI is near the 50 level, but the price is struggling near the 50-hour simple moving average.

Gold Price Hits New High While Crude Oil Price Consolidates_2

Immediate resistance is near the $85.35 level. There is also a connecting bearish trend line forming with resistance near $85.60. It is close to the 76.4% Fib retracement level of the downward move from the $85.99 swing high to the $84.33 swing low.

A clear move above the trend line resistance could send the price toward the $86.40 resistance. Any more gains might send the price toward the $87.00 level.

Conversely, the price might start a fresh decline from the $85.35 resistance. Immediate support sits near the $84.35 level. The next major support on the WTI crude oil chart is $84.00.

If there is a downside break, the price might decline toward $82.50. Any more losses may perhaps open the doors for a move toward the $81.20 support zone.

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